Department of Labor to Clarify Independent Contractor Status

When a truck driver hears about laws and regulations determining the difference between an independent contractor and employee, the first thing that may come to mind is California AB-5, one of the strictest standards in the nation for determining employee eligibility. At the federal level, however, the Department of Labor (DOL) wants to revise their definition under the Fair Labor Standards Act (FLSA). They hope to do this, “in order to promote certainty for stakeholders, reduce litigation, and encourage innovation in the economy.”

The Status Quo

The DOL has posted the full proposed rule for comments on the Regulations website. We are not lawyers, so our five-minute summary below should not constitute a substitute for actual reading of the rule, but rather a quick rule-of-thumb for people in a hurry that are not strongly affected by the changes.

Since roughly the time of Real v. Driscoll Strawberry Assocs., Inc. in 19979, the Department of Labor has used a six-factor test to determine whether a worker was an employee or an independent contractor:

1. The degree of autonomy the worker has in accomplishing the task.
2. The worker’s potential for profit or loss from the task, including how widely it can vary.
3. Whether or not the worker used his own resources for the task, and if so, to what extent.
4. Whether the task has a limited number of people who can fulfill it (denoted as a “special skill”).
5. How long the worker is expected to work with the company.
6. Whether the work done is a part of the company’s key operations.

Does any of this sound familiar? California AB-5 uses points 1 and 6, as well as something similar to 3, to determine its classification.

The Changes

The DOL wants to better clarify the rules of this six-factor test. In their own words from the proposed rule regarding Title 29:

• Introductory provisions at § 795.100 explaining the purpose and legal authority for the new part;
• a provision at § 795.105(a) explaining that independent contractors are not employees under the FLSA;
• a provision at § 795.105(b) discussing the “economic reality” test for distinguishing FLSA employees from independent contractors, clarifying that the concept of economic dependence turns on whether a worker is in business for him- or herself (independent contractor) or is economically dependent on a potential employer for work (employee);
• provisions at § 795.105(c) and (d) describing factors examined as part of the economic reality test, including two “core” factors—the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss—which are afforded greater weight in the analysis, as well as three other factors that may serve as additional guideposts in the analysis;
• a provision at § 795.110 advising that the parties’ actual practice is more relevant than what may be contractually or theoretically possible; and
• a severability provision at § 795.115.

The DOL hopes that by adding to the regulation, there will be less risk of misclassification overall. Essentially, it puts stronger emphasis on the first three points than the latter three, if you consider a worker using his own resources the same as being in business for him or herself. If you do not consider them the same, then it changes the former to the latter.

Conclusion

You are allowed to submit your own comments on the regulation before October 27th, 2020.

In our opinion, we are all for it. The changes do not add regulations per se, so much as they do clarify what already exists, and doing that should result in less legal costs and fewer legal headaches for everyone involved, not just in the trucking industry. Everyone wins except for the lawyers!

In addition, the DOL estimates an average cost savings of $221.3 million per year (the way this number was calculated was based on total hours spent in the United States determining proper classification that would be saved, multiplied by an average wage ranging from $46.36 per hour to $54.74. It is very fascinating to see how they come up with the numbers, and worth a read on the original webpage if you have the time). This would help it fulfill Executive Order 13771, the Executive Order signed by President Donald J. Trump within his first month in office to reduce both the total number and total cost of regulations.

Currently there are more than 140 comments made on the regulation modifications, including a trucker who approves of the clarification. If you want to have your voice heard, whether you are for or against this change, make sure to post your concerns on or before October 26th.

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